Inflation: The Fight to Tame Rising Costs in America
Why Inflation is so dang tricky, and difficult to control for The Federal Reserve…..
Inflation, we All are familiar with it, but why is inflation so important. Well, for starters the very definition of inflation is the action of inflating something or the condition of being inflated. I’ll use a metaphor think of a ballon, it’s meant to be inflated but when you inflate a balloon past its limitations its elasticity is unleashed. Scientifically speaking, normally, there is a balance of the balloon skin's elastic tension in which every point on the balloon's surface is being pulled by the material surrounding it causes it to Pop !
The same concept with inflation, it can wreck and destroy an economy causing inflation to create havoc on society if not held in check
US Inflation Rate is at 3.18%, compared to 2.97% last month and 8.52% last year. This is lower than the long term average of 3.28%. The US Inflation Rate is the percentage in which a chosen basket of goods and services purchased in the US increases in price over a year
Think of it like this, the goods are food and services are maintenance on your vehicle
The Government uses inflation measures such as CPI which stands for Consumer Price Index for measuring inflation
If this isn’t clicking for you, I highly suggest you check out my video on the Federal Reserve
The Untold Truth about The Federal Reserve
Currently the rising cost of rent, gas and groceries pushed the annual inflation rate a little higher last month to 3.2% which is much lower than a year ago
Consumer prices in July rose 3.2% from a year ago. The annual inflation rate inched up after falling steadily for the last 12 months which sounds like it’s no biggie but things can get away if you let it like in the 70s below
Regardless of inflation increasing it’s small Increase in the grand scheme of things
On a monthly basis it wasn’t much, prices rose 0.2% between June and July,
Rising rents account for most of the monthly increase
Gasoline and grocery prices rose too during the month, but gasoline is still cheaper than it was a year ago so it’s mixed results with everything in the American economy
Things can really get confusing when you strip out volatile food and energy prices, so-called "core inflation" was 4.7% for the 12 months ending in July. Which is down from the 4.8% seen in June
Although inflation has been easing, it remains well above the Federal Reserve's target of 2% which is considered the neutral rate. In order to do that, the Feds must tame the economy like the 1970s with Paul Volker leading the economy as Federal Chairman
The Fed will get one more monthly inflation check before its next decision on interest rates in September which at that meeting they could very well decide on how many more rate hikes on the Federal Interest rate for the year. Experts have priced in two more rate hikes which would bring the total fed rate higher than the current rate which is between 5.25% to 5.5%. After sitting at 0% for more than a year during the coronavirus pandemic
My personal thoughts on that, is that the Fed Rate of past 0% is the cause of the “Age of Easy Money” which caused higher inflation and astronomical valuations on Stocks, and entire markets. You can’t have low prices on borrowing, you have to make money difficult to borrow otherwise it’s pointless. For example if I borrow $100 from you, and charge the next man 50% to borrow on the $100 and pay you back the $100 and collect my $150 from the man I lent the $100 from I gain $50 from the process making it essentially free money and easy borrowing
The Fed rate has steadily climbed since March 2022 minus June 2023, when the Federal Reserve paused rate hikes as the Federal Reserve aimed to combat rising inflation. The Federal Reserve has made mistakes in the past, such as keeping the Rate low when it should have increased in 2021 after low rates due to pandemic pressures
Although inflation is easing, it's still pretty high. Even if the Fed doesn't raise rates higher, they're likely to remain elevated for an extended period to kill inflation completely before you see a strong descent down on the Fed Rates. The Fed wants 2% inflation rate but their two objectives are
Maximum Employment
Price Stability
Inflation must be maintained because my personal opinion aside the Federal Reserve feels inflation has an impact on many people's pocketbooks since households are paying more for mortgages and credit cards, for example I discussed this in my most recent video on YouTube
America is $1 Trillion in Credit Card Debt: Record Credit Debt could Spark National Crisis(But Why?)
The economy may be looking stronger than it appears with low unemployment, but there's still a risk the U.S. could enter a recession sometime next year, at least on paper but instead of the traditional economic recession you could see a slowdown of economic growth
China's economy, for example, is showing signs of slowing down significantly, which is deflationary which is the opposite of inflationary which could impact the global economy at a time when the U.S. is taking a tougher stance against the Asian country with Semiconductors Chips along with trade restrictions that could help China bolster its military capabilities abroad in the technology sector
Well that’s enough for today, hopefully this help you and if it did please consider sharing along with donation to the publication with a small donation of $8 a month or $80 a year to keep this publication free in entirety for learning purposes. Thank you
Monk
Disclaimer: The Monk Investor Newsletter uses information from various sources believed to be reliable, but the accuracy cannot be 100% guaranteed. So please treat information contained in this publication as not individual investment advice for your personal financial situation. You are advised to discuss your investment options with your financial adviser. Consult your financial adviser to understand if any or all investment is suitable for your specific needs. I may, from time to time, have positions in the securities covered in the articles on this website. This is not a recommendation to buy or sell stocks it’s more so for entertainment and research purposes.
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